Exxon Mobil earnings: Down today, up tomorrow, but after that ... who knows?

Exxon Mobil (XOM) is the beast of the global energy industry. It ranks No.1 in market cap among all companies traded on U.S. exchanges with a market value of $355 billion That is $125 billion ahead of Chinese oil giant PetroChina (PTR) and more than double the market cap of the next-largest U.S.-based energy company, Chevron (CVX).

The market started to show some concern about Exxon's earnings over a year ago, when the stock began its descent from nearly $95 to the $73 where it trades today. Most large global oil companies have turned in only modest earnings for the last quarter because crude prices traded around $65 a barrel during that period, less than half their July 2008 peak. Earlier this week, BP (BP) posted earnings for the third quarter that were off 34 percent from last year. It said the major reason for the dip was relatively low oil and gas prices.

Wall Street expected Exxon to post earnings per share of $1.06 for the third quarter on revenue of $79.3 billion. Actual results came in at $0.98, down 65 percent year-over-year. Revenue was $82.26 billion. The stock sold off, but only modestly.

Analysts expect the next few quarters of earnings will be good for Exxon and its competitors because crude prices are moving up again, but looking out five years, the oil giant faces problems, many of which will not be easily overcome.

The first issue Exxon faces is that oil is not only harder to find, it is harder to recover, so the costs of its exploration operations are likely to rise sharply and soon. Most of the largest deposits being discovered now are in deep water. The most recently tapped large fields are in the Gulf of Mexico, and off the coasts of Brazil and Africa. These fields are miles beneath the ocean's surface and then more miles below the ocean's floor. Recovering this oil will test the limits of drilling technology, and it will be expensive. As reserves in countries like Mexico dwindle, the ocean will emerge as the only major untapped source of new supply.

Exxon is also up against large Chinese oil companies when it bids for supply, and those companies are funded by China's central government. As China's need for oil and gas has rocketed upward along with its economy, it has rapidly become an aggressive bidder for large reserves. Recently, it locked up new supply from Venezuela and Brazil, and may cut a deal with Ghana. An additional issue for U.S. companies such as Exxon: Some of the nations with large untapped reserves are ruled by repressive regimes, which may keep Exxon from offering to develop their oil fields. China has no such qualms. Political and ethical issues aside, the Chinese are bidding up the price of oil and other assets, making low-cost inventory more difficult to acquire.

Exxon's final problem has been a threat looming on the horizon for years, but it's not one the company has appeared to worry about. Alternative energy sources including solar, wind, and ethanol have grown in fits and starts. The technology for these sources has often been primitive, and there has not been enough demand to properly fund R&D and capital spending. But as fossil fuel prices rise, the US, Europe, and Japan will have a growing incentive to look to alternative energy and fund it. Publicly-traded alternative energy firms like Suntech (STP) have multibillion-dollar market caps, an indication of significant investor interest. And a number of large companies such as Google (GOOG) are developing their own power alternatives to save money. The technology that Google creates is likely to be shared with other large tech companies, even if they have to pay modest licensing fees.

Exxon's future may look good for the next two or three years. After that, all bets are off.